Skillsoft Corp ((SKIL)) has held its Q2 earnings call. Read on for the main highlights of the call.
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The recent earnings call for Skillsoft Corp presented a mixed sentiment, reflecting both optimism and caution. While the company has made strides in its transformation efforts, profitability, and strategic investments, it faces ongoing challenges with revenue decline and external market conditions impacting segments like Global Knowledge. The growth in the TDS enterprise and Precipio platform offers a positive outlook, yet economic uncertainties continue to pose significant hurdles.
Consistent Profitability and Improved Adjusted EBITDA Margins
Skillsoft has managed to maintain consistent profitability and improved adjusted EBITDA margins despite a lower revenue base. The company reported an adjusted EBITDA of $28.3 million, which remained flat compared to the previous year, with a slight increase in margin from 21.4% to 22%. This achievement is attributed to successful expense reduction and operational improvement initiatives.
Transformation and Strategic Investments
Skillsoft is one year into its transformation plan, which has shown promising results. The company has achieved $45 million in expense reductions and is working towards stabilizing its core TDS enterprise segment. Key actions in the transformation include establishing a dual business unit structure, enhancing operational execution, and building a strong leadership team.
TDS Enterprise Solution Growth
The TDS enterprise solution has demonstrated a fourth consecutive quarter of revenue growth, benefiting from a market shift towards comprehensive talent development solutions. This growth underscores the company’s strategic focus on expanding its enterprise solutions.
Customer Wins and Demand for Scalable Solutions
Skillsoft secured significant customer wins in the second quarter, partnering with a global athletic apparel brand, a semiconductor manufacturer, and a European digital services provider. These partnerships highlight the increasing demand for scalable learning solutions that Skillsoft offers.
Precipio Platform Momentum
The Precipio platform has shown remarkable growth, with technology learners increasing by 50% year over year, AI learners up by 74%, and AI learning hours surging by 158%. This momentum reflects the platform’s expanding reach and effectiveness in the learning technology space.
Revenue Decline and Economic Uncertainty
Skillsoft experienced a 2.6% decline in total revenue year over year, primarily due to economic uncertainty affecting customer discretionary training spending. This decline highlights the challenges posed by the current economic environment.
Global Knowledge Segment Decline
The Global Knowledge segment saw a 9.6% decrease in revenue year over year, driven by softening demand, particularly in North America, and geopolitical instability in the Middle East.
Federal Business Churn
Churn and erosion in the federal business significantly impacted the TDS LTM dollar retention rate, reducing performance by approximately four percentage points, indicating challenges in maintaining federal contracts.
Free Cash Flow Challenges
Skillsoft reported a negative free cash flow of $22.6 million for the quarter, compared to negative $16.1 million in the prior year. However, the year-to-date free cash flow remains positive, suggesting some resilience in cash management.
Forward-Looking Guidance
During the earnings call, Skillsoft provided updated guidance amid ongoing macroeconomic challenges. The company adjusted its full-year revenue outlook to between $510 million and $530 million, reflecting anticipated continued softness in federal spending, particularly within its Global Knowledge segment. Despite a lowered revenue base, Skillsoft maintained its full-year expectations for adjusted EBITDA, targeting between $112 million and $118 million, and reiterated its free cash flow guidance of $13 million to $18 million for the year. The company also emphasized its strategic focus on enterprise customers and ongoing transformation initiatives.
In conclusion, Skillsoft’s earnings call highlighted a balanced view of its current position and future prospects. While the company is making significant progress in its transformation and profitability, challenges such as revenue decline and economic uncertainties remain. The forward-looking guidance reflects cautious optimism, with a focus on strategic investments and enterprise solutions to drive future growth.